THE PERFORMANCE INDEX – PI

The PI provides a measure of performance. It includes six specific factors that are important in evaluating company performance. All companies begin the simulation with a Performance Index (PI) of 100. As a company’s position in the industry improves over its competitor's position, its PI increases. If a company’s performance causes a decline, its PI will fall below 100. The components of the PI are described below. The PI level is driven by the Retained Earnings Factor. The other factors, with the exception of productivity, are relative and highlight differences between the companies.

 

Retained Earnings

Retained Earnings, or total net profit to date, determine 50% of the company’s PI. This factor increases as a company earns more in a period than its earnings in Period 0.

Demand Potential

Demand Potential is based on a company’s share of total marketing and R & D expenditures in the industry from the beginning of the simulation. Demand Potential is based on the assumption that marketing establishes brand name value and R & D establishes product value. It represents 10% of a company’s PI.

Supply Potential

Supply Potential is based on a company’s share of total production capacity. Supply Potential is based on the assumption that physical production facilities have an inherent value whether or not they are being managed profitably. It represents 10% of a company’s PI.

Productivity

Productivity represents the efficiency of a company’s operations. The productivity factor accounts for 10% of MPI. It declines as capacity utilization goes outside a range of 75%-85%.

Market Share

Market Share factor represents 10% of a company’s PI. It is based on a company’s unit market share in the current period.

Growth

The growth factor is calculated by comparing a company’s sales growth rate from the previous period to the industry’s sales growth rate from the previous period. If a company’s sales increase more than the industry’s sales, this factor increases. If a company’s sales growth lags more than the industry’s, this factor decreases. It represents 10% of a company’s PI.